Group News
Time to pay up: preparing for a tougher late payment regime
Late payment has long been a persistent challenge for UK businesses, particularly for SMEs managing cashflow in uncertain economic conditions. However, significant reform is now on the horizon. Following its 2025 consultation, Time to pay up, the government has set out an ambitious package of measures to curb poor payment practices and rebalance the playing field.
While draft legislation is not yet in force, the direction of travel is clear. Businesses should start preparing now.
What is changing?
The government’s response, published on 24 March 2026, outlines a series of reforms that collectively represent the most substantial shift in late payment legislation since the Late Payment of Commercial Debts (Interest) Act 1998.
The key proposals include:
- Maximum payment terms
A statutory cap of 60 days for business-to-business payments. Some exemptions will apply, including where both parties are large companies, or where international trade is involved. A previously mooted reduction to 45 days has, for now, been shelved. - Mandatory statutory interest
All commercial contracts will include a non-negotiable right to interest on late payments, set at 8% above the Bank of England base rate. Crucially, parties will no longer be able to contract out of this or substitute alternative remedies. - Deadline for disputing invoices
A new statutory timeframe for raising disputes is expected, although the detail is still to be confirmed. Failure to dispute within this window could trigger compensation obligations.
Alongside these measures, the government intends to strengthen the role of the Small Business Commissioner (SBC), giving it greater enforcement powers and a more active role in holding businesses to account.
A more interventionist regime
Taken together, these reforms signal a far more interventionist approach. Payment terms will no longer be a matter of commercial negotiation alone; they will be governed by statutory rules with limited flexibility.
For many businesses, particularly larger organisations accustomed to extended payment cycles, this represents a significant cultural shift. The ability to impose favourable terms on suppliers -whether explicitly or through commercial leverage - will be curtailed.
There is also a clear emphasis on accountability. Businesses that fail to comply risk not only financial penalties but also reputational damage, particularly if payment performance data is made public. In an environment where ESG and corporate responsibility are under increasing scrutiny, this is not a risk to be taken lightly.
Practical implications
Although some aspects of the regime remain unclear, the operational impact is already foreseeable.
Internal processes will need to evolve. Finance teams will need to ensure that invoices are processed, approved and paid within tighter timeframes, with less tolerance for administrative delay. What may previously have been seen as minor inefficiencies could now result in financial penalties or compensation payments.
Dispute management will also become critical. If a statutory deadline for disputing invoices is introduced, businesses must be able to identify potential issues early and escalate them quickly. Missing the window to raise a dispute could mean losing the opportunity to challenge a claim altogether, even where there may be a legitimate defence.
Contractual terms will require careful review. Many standard terms currently allow for extended payment periods or alternative remedies for late payment, but these are likely to become unenforceable under the new regime. Businesses will need to ensure their contracts align with the statutory framework.
Cashflow planning will inevitably tighten. With reduced flexibility around payment timing, businesses will need to take a more proactive and disciplined approach to managing working capital, particularly those with complex supply chains or narrower margins.
Unanswered questions
Despite the clarity of intent, several practical questions remain.
For example, how will the SBC’s enhanced powers operate in practice? Will it have the resources to manage what could be a significant increase in disputes and complaints? There is a risk that the system could become congested, particularly in the early stages of implementation.
Similarly, the consequences of failing to raise a dispute within the prescribed timeframe are not yet fully defined. If a business has a valid reason for withholding payment but misses the deadline, will it lose its defence entirely? This is a critical issue that will need careful consideration in the final legislation.
There is also the broader question of enforcement. While the government is keen to eliminate abusive practices, legislating against informal commercial pressure - particularly in complex supply chains - may prove challenging.
Preparing for 2027
The government has indicated that it wants to see these reforms implemented in 2027. Although that may seem some way off, the scale of change should not be underestimated.
Businesses would be well advised to start preparing now by reviewing payment terms and contractual arrangements, assessing whether internal invoice approval and payment processes are fit for purpose, and putting in place clear and robust dispute resolution procedures. It will also be important to ensure that finance and procurement teams are aware of the likely changes and understand the implications for day-to-day operations, while continuing to monitor developments as the draft legislation progresses.
A shift in commercial culture
Ultimately, these reforms are about more than compliance. They are intended to drive a broader shift in commercial behaviour - one that prioritises fairness, transparency and prompt payment.
For SMEs, this is a welcome development. For larger businesses, it represents a new set of obligations and risks. Either way, the message is clear: a more disciplined approach to payment is no longer optional.
As the detail of the legislation emerges, businesses that have already taken steps to adapt will be best placed to navigate the transition.
Feedback Form
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Donec ultricies consequat.
News and insights
Get in touch
with Leonard Curtis
Forward
with purpose
Leonard Curtis is a trading style of Reach Commercial Finance Limited, registered at Riverside House, Irwell Street, Manchester, M3 5EN. Company Register number is 09056450. Reach Commercial Finance Limited is authorised and regulated by the Financial Conduct Authority, FRN: 753686. Reach Commercial Finance Limited is an authorised credit broker and not a lender. We work with an unrestricted number of lenders to find a potentially suitable arrangement for your consideration. ICO registration ZA069234 and you can check via www.ico.org.uk. We will receive commission from lenders. Different lenders pay different amounts depending on different commission models. For transparency we work with the following commission models: fixed fee, fixed rate of commission, percentage of the amount you borrow and rate for risk (this is based on the risk profile of the business). Further details of the commission model, calculation and amount will be disclosed to you throughout your customer journey. Privacy notice.
Leonard Curtis Legal Limited is a limited company, registered in England and Wales with registered number 09820186. Registered office: Riverside House, Irwell Street, Manchester M3 5EN. Leonard Curtis Legal Limited is registered with the Solicitors Regulation Authority with number 626004.